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Visa's 2017 Growth to Ride on Emerging Markets and US Spending

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Part 5
Visa's 2017 Growth to Ride on Emerging Markets and US Spending PART 5 OF 9

Visa Expected to See High Operating Margins in 2017

Improving margins

Visa (V) has managed to expand its operations globally and has seen improving operating margins over the past couple of years. The growth in margins has been driven by economies of scale, faster growth of revenues than expenses, and higher service and processing fees. The company saw an operating profit margin of 69% in fiscal 1Q17, a rise of 2% compared to the prior year and 5% compared to the previous quarter. The company is expected to post a margin of 64%–66% in fiscal 2017 helped by expense management, partially offset by higher incentives in newer markets. Visa posted adjusted operating income of $3.1 billion, a growth of 19.0% on a YoY basis, reflecting slower growth than revenues.

Visa Expected to See High Operating Margins in 2017

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Visa’s major expenses include personnel, marketing, network and processing, and professional fees. The company posted total revenue of $15.0 billion in fiscal 2016. Here’s how the company’s peers in the industry performed in terms of 2016 revenue:

  • MasterCard (MA): $10.8 billion
  • Discover Financial Services (DFS): $7.6 billion
  • American Express (AXP): $32.7 billion

Together, these companies form 6.1% of the SPDR Dow Jones Industrial Average ETF (DIA).

Management projections

Visa’s management expects to achieve revenue growth of 16.0%–18.0% in fiscal 2017 with a negative dollar impact of 2.0%–2.5%. The company expects client incentives at 20.5%–21.5% of total revenue, reflecting higher incentives and rewards due to competition. It could see operating margins of 64%–66%, which is in line with fiscal 2016.

Management expects the company’s earnings per share to grow by 14%–16% on an adjusted basis. This estimate incorporates a negative currency impact.

In the next part, we’ll study Visa’s investments, strategy, and major growth drivers for the upcoming quarters.

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